US Economy on 'Slippery Slope' to Recession: Rosenberg
The U.S. economy is "on a slippery slope organically without the ongoing benefits, if you want to call it that, of government intervention and expansion of the Federal Reserve balance sheet," economist David Rosenberg told CNBC Tuesday.
"We have to be honest with ourselves, this has been an absolutely horrible recovery," he said. "It’s just so evident to me two years into this expansion that whenever the fiscal and monetary spigots are turned off we go into a soft patch. This happened last year. I feel like Bill Murray in 'Groundhog Day.'"
Rosenberg, of Gluskin Sheff + Associates, expects the Federal Reserve to "stick to script" and repeat what Chairman Ben Bernanke said at a June 7 speech in Atlanta—the economy has hit a "soft patch" but there will be a second-half pickup.
However, Rosenberg, who predicts a 99 percent chance of recession next year, said things are worse than the Fed acknowledges. He says when the recession comes and is priced into the market there will be a correction of 20 percent.
Without the Fed's quantitative easing program, or QE2, which ends next week, or the Obama administration's fiscal stimulus program, last year's soft patch "would’ve morphed into something harder." Those programs, however, "buy us three or four months of better economic data, the stimulus fades and then, what do you know, we’re left with a soft patch again."
The economist added he doesn't "remember a cycle where you have two soft patches. That’s completely abnormal."
He sees "no more fiscal stimulus" this year after QE2 ends, but an extension, or QE3, "will be next year’s story" because while Bernanke can be aggressive when necessary to fix the economy, he "isn't going to be early."
When the recession comes, investors should be long in "high-quality sectors" and "short the low-quality stuff and the small caps." Hedge fund strategies work very well, he said, including bonds and hybrid securities.
"I've been starting to see more clients putting money into hybrids, which is really income equity. I think that's a very good strategy to be in right now," he said, as is holding gold.